TOKYO / RankWire.AI / – On Monday, Japanese equities faced significant downward pressure, with the Nikkei 225 declining nearly 2% during early trading. The main index dropped 1.97% to close at 65,096.63, after briefly touching a session low of 64,832.10. Investors reacted strongly to increasing bond yields and expectations of tighter interest rate policies, particularly affecting technology stocks. The broader Topix index also declined initially, falling 0.84% to 4,111.71. Concurrently, Japanese government bond yields climbed, adding further strain to rate-sensitive sectors within the stock market.
The morning sell-off significantly eased before the market closed. The Nikkei finished the day at 66,311.93, down 93.63 points, or 0.14%, after rebounding from its lowest point of the session. The Topix ended at 4,156.29, gaining 0.23% and reversing its earlier decline. Market breadth also improved during trading hours, with 131 stocks advancing, 91 declining, and three unchanged among Nikkei components. Overall, the final figures reflected a much smaller loss than the steep drop seen shortly after the market opened.
Investors kept a close watch on Japan’s government bond market. The 10-year benchmark yield rose to 2.95% on Monday, reaching its highest level since 1996. The two-year yield increased to 1.73%, the highest since April 1995. These short-term yields tend to closely follow expectations for central bank monetary policy. As yields rise, bond prices fall, which contributed to market volatility. The moves coincided with heightened expectations for higher interest rates in both Japan and the United States.
Japanese bond yields hit multi-decade peaks
Early in the session, technology stocks bore the brunt of selling, influenced by weakness in U.S. semiconductor shares at the end of the previous week. The Nikkei’s price-weighted structure gives significant influence to large technology firms in daily index fluctuations. As the day progressed, other sectors fared better, aiding the index’s recovery. Banking stocks also held up more strongly as domestic yields climbed. By the close, the Topix outperformed the Nikkei, reflecting broader support beyond the largest tech companies.
On Tuesday, Japanese shares faced renewed downward pressure, with the Nikkei dropping about 1% to 65,646.57 during the session. Semiconductor-related equities again ranked among the weakest performers. Elevated global bond yields and energy prices persisted, with Brent crude trading above $91 a barrel amid renewed Middle East conflicts. The yen remained near 160 per dollar, keeping currency movements in focus. Given Japan’s reliance on crude oil imports, shifts in global energy prices are significant for domestic costs and inflation.
Tokyo markets remain focused on interest rate developments
The Bank of Japan maintained its short-term policy rate near 1% after raising it in June and leaving it unchanged in July. Its upcoming monetary policy meeting is scheduled for September 17 and 18. Meanwhile, the Federal Reserve also emphasized inflation as a key aspect of its latest policy stance. On August 28, its chair highlighted that U.S. inflation stayed above the Fed’s 2% target. Expectations for higher borrowing costs increased as a result, even as Japanese yields remained near three-decade highs.
Monday’s close showed that the Nikkei’s early 1.97% slide did not persist throughout the trading session. The index largely recovered to end just 0.14% lower, with the Topix closing higher. However, Tuesday saw another decline as chip stocks weakened and bond yields stayed elevated. These two sessions illustrated significant volatility across Japanese equities, government debt, and the yen. Factors such as interest rates, inflation, energy prices, and currency fluctuations continue to shape trading dynamics in Tokyo at the start of September.